Northeast Asian ethylene dichloride (EDC) spot prices are likely to sustain recent gains during the first half of 2024, with lower production rates across Asia, rising demand from PVC producers in south and southeast Asia and higher freight costs caused by shipping disruptions through the Red Sea.
Argus EDC spot prices edged up by $5/t in January to $350/t cfr northeast Asia, helping chlorine netbacks into EDC to positive territory. Argus estimates chlorine netbacks into EDC have risen above zero since December, but EDC producers remain reluctant to increase operating rates as they are cautious of putting incremental caustic soda supply into a currently weak market.
Standalone chlorine supply cannot be stored, forcing chlor-alkali producers to run in accordance to caustic soda buying and chlorine demand for chlor-vinyls (EDC, VCM, PVC) and other downstream derivatives. This makes chlorine supply hard to price, meaning EDC producers will reference netbacks as a means to analyse their operating plans.
Rising costs for feedstock ethylene are also discouraging higher EDC operating rates in the medium-term, with Asian cracker margins negative for the past two and a half years and unlikely to recover substantially in the coming months. Argus ethylene spot prices rose by $20/t on 24 January to $900/t cfr northeast Asia, a trend likely to sustain well into the first half of the year.
Lower EDC operating rates across Asia were accompanied by one major unplanned maintenance schedule at a 730,000 dmt/yr caustic soda and 840,000 t/yr EDC production facility in Al Jubail, Saudi Arabia, since the second quarter of 2023. This forced many contract buyers across Asia to seek alternative EDC spot cargoes in order to keep their PVC plants running. Caustic soda and EDC production in Saudi Arabia is likely to return to normal in mid-2024, which will keep EDC requirements across Asia elevated in the coming months as PVC producers prepare for restocking season.
Indian PVC demand typically rises well ahead of the start of the monsoon season in the third quarter, and restocking demand in southeast Asia typically takes place before and after the lunar new year holidays and the Islamic holy month of Ramadan.
Shipping disruptions new catalyst
PVC producers across Asia have relied on US EDC imports as a means to cover any shortfalls, but these began to dwindle in recent months as US producers looked to balance caustic soda and chlorine supply against weakening buying from both sides of the electrochemical unit (ECU).
Latest trade data from Global Trade Tracker (GTT) show that northeast Asia (Japan, south Korea, China, Taiwan) imported a combined 537,729t of EDC in 2023, 5pc higher than in 2022. This increase is mainly attributed to a 67pc year on year rise in US imports. But US imports have eased since 2021 as export availability was partially restricted by maintenance and a need to limit incremental chlorine and caustic soda supply.
There were some EDC bookings from the US to Taiwan in January, but shipment disruptions through the Red Sea and Suez Canal are becoming of increasing concern among global chlor-vinyl producers. EDC freight rates for 10,000t cargoes from the US to northeast and southeast Asia are above $100/t, with vessel attacks in the Red Sea forcing US sellers to re-route around the Cape of Good Hope. This is profoundly higher than typical freight rates of $60-80/t via the Suez Canal, keeping US EDC import arrivals much higher priced than domestic EDC supply.
Rising freight costs are likely to keep US EDC imports into northeast Asia at bay in the coming months, removing alternative feedstock EDC supply options for Asian PVC producers in the medium-term.
